Everyone knows that prevention is better than cure, or indeed, that risk mitigation is better than having a claim.
But this is even more true in a world where just-in-time delivery and time-sensitive projects have dramatically increased the cost of business interruption or delay. In a time of cost-cutting and belt-tightening, risk engineering can often be seen as an additional expense, but the value of reducing losses and interruptions can far outweigh the cost.
Now is the time for risk engineering
It can be argued that a period of economic downturn is exactly the time that companies should be investing in loss mitigation. In
diffi cult times, companies simply cannot afford losses and the delays they can entail, and when margins are tight, they may not have the fi nancial strength to cope with losses and lost customers. Risk prioritization is essential in order to optimize the value from the risk management budget.
Risk engineering can be particularly important for companies that are starting to expand and to export their products. As companies enter new markets, such as Brazil, Russia, India and China, it is vital that they have access to as much information as
possible beforehand so they are aware of the risks they may face.
Re-routing to avoid delay
For example, a Zurich customer required information about the transport of automotive products to Russia. With just-in-time processes, any delay would have been very expensive for the company. Risk engineers were able to offer four alternative routes, with a risk grading for each route, allowing the client to balance the various alternatives with the customer’s transport cost estimates.
Customer risk engineering checklist
- Has a risk analysis been carried out?
- Where are losses occurring?
- Why are losses occurring?
- Is the bigger picture being looked at, especially with
regard to supply chain interruption?
- Have interdependencies been mapped?
- Is there a mitigation plan in place?
- Is the mitigation plan being effectively communicated to
all employees?
- Is there regular monitoring of the effectiveness of loss prevention measures?
- Is the data relating to loss prevention being collected?
- Is there an effective system of risk reporting?
- Are costs of risks and cost benefi t analyses being carried out?
- Is the human element being taken into account?
- Is there a global risk management program in place, including an effective multinational insurance program?
Loss trends and patterns
Claims professionals see the loss trends and developments:
- How thefts are being carried out.
- Which transportation routes are higher risk.
- Which transportation companies are security minded.
- Which companies have a higher theft incident record.
This information on local loss development patterns can be collected and passed to the risk engineering teams who can then share them with customers to help develop economically viable, tailor-made solutions. These might include:
- alternative transportation providers or routes
- the implementation of dedicated routing
- the use of pre-planned and secure rest stops.
Case study: Water damage to goods
An insured had a loss trend of water damage to their products originating out of Indonesia. The trend was identified by the marine claims adjuster who handled the losses as they were discovered upon delivery of the product in the US. The underwriter was advised of the loss trend, and contacted the marine risk engineering department who then arranged for an inspection of cargo loading and shipping procedures at the insured’s supplier in Indonesia.
The risk engineer determined that the supplier did not conduct an inspection of the containers when they were received for the loading of the insured’s cargo. Such an inspection would have identified deficiencies in the container. By implementing a container quality check before loading the insured’s goods for transit to the US, future similar losses could be prevented or reduced.
Further, the claims and underwriting team were able to advise the insured on improving its freight contracts with the carrier and increasing the carrier’s liability if damage occurred to the insured’s cargo as a result of the carrier’s negligence.
Common-sense loss prevention
There are many areas where risk engineering can make a difference, including security, employee training, routing options, packing improvements and cargo handling. Some risk
engineering measures can be simple and inexpensive, but can make a huge difference. And while some may be technical or
innovative, others may be more about common sense.
A claim paid by Zurich involved a turbine being transported from Berne, Switzerland to Chicago, Illinois. The first part of the trip was managed with the help of a special flat-bed trailer. However, the route had not been checked before the shipment, and at the
entrance to a tunnel, the driver of the 4.20 meter high rig failed to notice the sign saying the maximum vehicle height is 3.80 meters. needless to say, the turbine was heavily damaged as the truck crashed into the tunnel. Checking routes is an essential and basic part of loss mitigation.
A claim paid by Zurich involved a shipment of clothing that was on its way by road from Rotterdam, netherlands, to Zurich, Switzerland. A storm broke out with torrential rain, and because the truck driver had forgotten to properly tie down the tarpaulin, the cardboard boxes were soaked by rain and road spray, causing water damage to the clothing. Human error is a major loss factor that can be mitigated through proper training and monitoring.
The human element
It is important to remember that the human element is crucial to risk engineering systems and devices are useful, but it is often the
human element that can have the biggest impact on mitigating risk. Training is invaluable for increasing employee awareness, so that they become involved and part of the solution.
Risk engineering is not just about preventing and mitigating losses and reducing potential disruptions to operations, but is increasingly about providing the correct risk analysis methods. These can then enable the understanding and reduction of the total cost of risk, as well as prioritizing risk improvements and enabling informed decisions around optimizing future capital
expenditures and tracking and measuring risk improvements.
